- Flat first-half revenue of £20.4mn
- Gross margin up from 45.1 to 48.6 per cent
- Borrowings slashed
- Pre-tax profit halves to £0.7mn but strong growth forecast in second half
Crawley-based Inspiration Healthcare (IHC:36p) is making progress in reducing debt and boosting gross margin. A return to revenue and profit growth is now forecast from the second half to 31 January 2024 as headwinds dissipate.
The medical technology group has a strong focus on the high-growth neonatal intensive care market. Although first-half revenue of £20.4mn was flat, the headline numbers mask underlying growth. A 4 per cent growth in neonatal revenue to £16.1mn doesn’t tell the whole story as one of the group’s partners discontinued a product last year, and its replacement should have gained European CE marking under the Medical Device Regulations early in 2023. Regulatory delays, longer lead times for delivery and production schedule issues mean it is now expected in the first half of 2024.
Excluding the discontinued product, which delivered £1mn of revenue in the previous financial year, like-for-like neonatal revenue increased 11 per cent with the lead product range, the SLE6000 ventilator, benefiting from strong demand in Ireland, Israel and recovery in China. Analysts at house broker Liberum Capital note that most of the sales were top-end ventilators.
Inspiration has also submitted an application to the US Food and Drug Administration ahead of a planned launch of the SLE6000 range in 2024. The directors believe this is a significant commercial opportunity, given the worldwide acceptance of the product as a specialist neonatal ventilator, and the size of the US market.
Stocking issues impacted the smaller infusion business, too. It provides products to 'homecare providers', some of which look after NHS patients in the community to free up hospital beds. However, it was a case of overstocking by a major customer that led to the 12 per cent fall in divisional revenue to £4.3mn. Excluding this, Infusion revenue grew by 18 per cent, driven by expansion of the product range into new therapy areas. Importantly, the de-stocking process is now complete, so the directors are guiding investors to expect a standard run-rate in the second half.
Working capital build unwinds
The other main take was the unwinding of last year’s working capital which helped slash net debt from £3.8mn to £2.1mn. Liberum is predicting a small net cash position by the financial year-end (31 January 2024). The forecast is based on Inspiration delivering 9 per cent revenue growth at a maintained gross margin of 48 per cent to drive a doubling of second-half operating profit. The uplift also factors in cost savings from a recent restructuring.
On this basis, analysts expect 20 per cent growth in full-year adjusted pre-tax profit to £2.4mn, on 4 per cent higher revenue of £41.3mn, so making good all of the first-half shortfall.
They also predict a doubling of pre-tax profit to £4.8mn on 10 per cent higher revenue of £47mn in the 2024-25 financial year. The implication is that the shares are rated on prospective price/earnings (PE) ratios of 11.6 and 5.8, respectively, low ratings for a medical technology company and one that pays a small dividend, too.
Moreover, with chief executive Neil Campbell noting first-half headwinds are receding and optimistic about trading prospects, it’s time to upgrade our hold recommendation (‘China's rebound should boost this lowly rated stock’, 3 May 2023) to buy.
